Latvian bubble blows
Güncelleme Tarihi:
The Associated Press
Oluşturulma Tarihi: Şubat 18, 2009 00:00
REZEKNE, Latvia - During the boom years, banks lent eagerly and Latvians borrowed profugely Real estate prices climbed so far that many Latvians, alarmed they would miss out, rushed to banks for home mortgage loans to buy homes and apartments, further inflating the property bubble.
For decades, the Rebir factory was the pride of the industrial town of Rezekne in eastern Latvia, with demand for its power drills and chain saws surviving the collapse of communism as it won over capitalist customers.
But the factory's owners closed up shop late last year, a victim of high labor costs during the country's now-collapsed boom. Some 1,000 people in the town of 36,000 lost their jobs, sending local unemployment to nearly 15 percent, and with the recession deepening hopes for new work are fading.
"The worst is yet to come," said Diana Zirnina, a city administration official. "We can feel that people are angry."
Rezekne's boom-to-bust woes are mirrored across Latvia and its Baltic Sea neighbors, Estonia and Lithuania. Not long ago, the three countries were nicknamed "Baltic Tigers" for their rapid growth and business friendly policies, and held up as models for other countries that regained control of their destinies after the 1991 collapse of the Soviet Union.
Now their economies are contracting sharply, pounded by the global financial crisis just as they were struggling to deal with a decline that set in after their economies overheated due to loose credit and government spending. The frustration and anxiety amid the drab Soviet housing blocks of Rezekne, about 45 kilometers from the border with Russia to the east, are palpable.
"It's upsetting. Latvia's lost so much," said Andris Laglers, a driver who joined the ranks of the unemployed in October. "Somehow we have to survive this winter."
Of the three countries, Latvia is worst off, suffering the sharpest recession in the 27-member European Union. The center-right government of Prime Minister Ivars Godmanis was forced in December to borrow 7.5 billion euros ($9.6 billion) from the International Monetary Fund and Scandinavian countries - a huge sum for a 21 billion euros economy.
Statistics last week showed output shrank by 10.5 percent year-on-year in the fourth quarter - meeting one yardstick for a depression, as opposed to a mere recession.
The reversal of fortune has stunned Latvians, who after joining the European Union in 2004 quickly became accustomed to the good life. Between 2000 and 2007 gross domestic product per capita increased over 90 percent to 6,500 lats (9,280 euros, $12,500).
The government in Riga is cutting back sharply, reducing pay for many civil servants by 30 percent and mothballing projects such as a proposed new national library. Every day hundreds of jobs are lost in this country of 2.3 million, and by some forecasts unemployment, now at 8.3 percent, could reach 15 percent.
During the boom, banks lent eagerly, and Latvians borrowed profligately, so that over four years beginning in 2004 the loan to GDP ratio soared from 40 to 88 percent. Real estate prices climbed so far that many Latvians, alarmed they would miss out, rushed to the banks for home mortgage loans to buy homes and apartments, further inflating a property bubble. In 2006, growth reached a white-hot 12.2 percent.
Economists gave abundant warnings that such fairy-tale growth was fraught with the risk of an equally precipitous fall. But leaders pushed ahead so that Latvia would catch up to West European living standards as quickly as possible.
But the factory's owners closed up shop late last year, a victim of high labor costs during the country's now-collapsed boom. Some 1,000 people in the town of 36,000 lost their jobs, sending local unemployment to nearly 15 percent, and with the recession deepening hopes for new work are fading.
"The worst is yet to come," said Diana Zirnina, a city administration official. "We can feel that people are angry."
Rezekne's boom-to-bust woes are mirrored across Latvia and its Baltic Sea neighbors, Estonia and Lithuania. Not long ago, the three countries were nicknamed "Baltic Tigers" for their rapid growth and business friendly policies, and held up as models for other countries that regained control of their destinies after the 1991 collapse of the Soviet Union.
Now their economies are contracting sharply, pounded by the global financial crisis just as they were struggling to deal with a decline that set in after their economies overheated due to loose credit and government spending. The frustration and anxiety amid the drab Soviet housing blocks of Rezekne, about 45 kilometers from the border with Russia to the east, are palpable.
"It's upsetting. Latvia's lost so much," said Andris Laglers, a driver who joined the ranks of the unemployed in October. "Somehow we have to survive this winter."
Of the three countries, Latvia is worst off, suffering the sharpest recession in the 27-member European Union. The center-right government of Prime Minister Ivars Godmanis was forced in December to borrow 7.5 billion euros ($9.6 billion) from the International Monetary Fund and Scandinavian countries - a huge sum for a 21 billion euros economy.
Statistics last week showed output shrank by 10.5 percent year-on-year in the fourth quarter - meeting one yardstick for a depression, as opposed to a mere recession.
The reversal of fortune has stunned Latvians, who after joining the European Union in 2004 quickly became accustomed to the good life. Between 2000 and 2007 gross domestic product per capita increased over 90 percent to 6,500 lats (9,280 euros, $12,500).
The government in Riga is cutting back sharply, reducing pay for many civil servants by 30 percent and mothballing projects such as a proposed new national library. Every day hundreds of jobs are lost in this country of 2.3 million, and by some forecasts unemployment, now at 8.3 percent, could reach 15 percent.
During the boom, banks lent eagerly, and Latvians borrowed profligately, so that over four years beginning in 2004 the loan to GDP ratio soared from 40 to 88 percent. Real estate prices climbed so far that many Latvians, alarmed they would miss out, rushed to the banks for home mortgage loans to buy homes and apartments, further inflating a property bubble. In 2006, growth reached a white-hot 12.2 percent.
Economists gave abundant warnings that such fairy-tale growth was fraught with the risk of an equally precipitous fall. But leaders pushed ahead so that Latvia would catch up to West European living standards as quickly as possible.